The mortgage market review has always smacked of a case of the horse already bolted. Indeed, the FSA admits it is fighting yesterday’s battle. However, it wants to avoid a repeat of what has happened and aspires to a mortgage market that has “more responsible lending, with proper consideration of overall affordability and a reduction in the risk of the mortgage being inappropriate”.
Mortgage trade bodies have responded angrily to the proposals, saying the new rules are not necessary in the current market as lenders are now far more conservative.
The Council of Mortgage Lenders says: “We question whether all consumers want or need the level of advice the FSA wants to put in place.” It is concerned that all the responsibility to ensure a mortgage is affordable has been taken away from the consumer and put on to the lender, which will discourage people from understanding their mortgage.
Even housebuilders have complained, yet it was numbers of housebuilders that fuelled the buy-to-let frenzy among novice landlords with offers of free rent and free stamp duty deals – and whose questionable valuations left borrowers up to their necks in negative equity.
The CML’s response is typical of a trade body looking after its own.
Whether lenders have been that conservative is debatable. Three years ago, the credit crunch was gathering pace, Northern Rock was counting the cost of over-enthusiastic lending and rumours were mounting that big high-street banks would not escape the carnage that was to ensue. The banks later went cap in hand to the Government and said they had learnt their lesson.
However, if recent FSA findings are to be believed, the most basic test for a would-be borrower of whether they would be able to afford to repay the loan was being overlooked even as taxpayers’ money was propping up the banks’ flagging balance sheets.
Earlier this year, as part of the review, the regulator discovered that almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income. It also found that the share of interest-only mortgages had been increasing and, at the peak of the market, more than 30 per cent of all mortgages were interest-only.
It also found, after mortgage payments and living costs had been deducted, 46 per cent of households either had no money left or had a shortfall.
It is one of the reasons I wince each time I see those bank adverts featuring smiling bank advisers cooing at babies and telling smug parents they can help get their finances in order.
You question whether bank employees could ever take us on a financial journey if they tried. As one of my peers in the personal finance industry says: “Would you lend money to a bloke in a pub without having some clue that he had the means of paying it back?”
I recognise that consumers are not blameless (we are always trying to get better deals and beat the system) and that not all of the unchecked mortgage applications would have been filled with bogus income figures. Many consumers were greedy and needed little encouragement to sign on the dotted line without considering the consequences.
But lenders have a respon-sibility to their customers and shareholders. If they could not get their act together in the aftermath of the worst banking crisis ever, it makes you wonder if they ever will.
Everyone, from lenders, to housebuilders and borrowers has to take what the FSA serves up on the chin. After all, we are collectively to blame for the mess we find ourselves in.
Paul Farrow is personal finance editor at the Telegraph Media GroupMoney Marketing